Business Combinations and Divestitures

Acquisitions

From time to time, we acquire businesses we believe are important to our long-term strategy. Results of operations for acquisitions are included in the accompanying Consolidated Statements of Operations from the date of acquisition. The balances included in the Consolidated Balance Sheets related to current year acquisitions are based on preliminary information and are subject to change when final asset valuations are obtained and the potential for liabilities has been evaluated. The purchase price for the acquisitions is allocated to the net assets acquired based upon their estimated fair values at the date of acquisition.

In April 2014, we acquired an additional 30% ownership interest in a joint venture in China. We paid $13 million for the incremental interest, thereby increasing our ownership interest from 45% to 75% and gaining control of the joint venture. As a result of this transaction, we adjusted our previously held equity investment to fair value, recognizing an $16 million gain, and we applied the consolidation method of accounting, recognizing $6 million of goodwill and $30 million of cash. During the year ended December 31, 2013, we acquired businesses for cash consideration of $8 million, net of cash acquired.

In May 2012, we acquired a company that designs and produces well completion tools. As purchase consideration, we paid $29 million in cash, issued three million shares valued at approximately $39 million, settled a previously existing note receivable for $16 million and entered into a contingent consideration arrangement valued at approximately $3 million at December 31, 2014 that will be settled in early 2015. This contingent consideration arrangement is dependent on the acquired company’s 2014 revenue and will be marked to market through current earnings in each reporting period prior to settlement. The liability is valued using Level 3 inputs. During the year ended December 31, 2012, we also acquired other businesses and equity investments for cash consideration of $144 million, net of cash acquired.

Divestitures

On December 31, 2014, we completed the sale of our engineered chemistry and Integrity drilling fluids businesses for proceeds totaling $750 million less estimated working capital adjustments of $16 million and transaction fees of $12 million and recognized a gain of $250 million. We may also receive a potential increase from an earnout tied to the post-closing performance of the disposed businesses during the twelve month period after the closing date. In addition, we disposed of all of our shares in Proserv Group Inc. (“Proserv”) and recognized a gain of $65 million resulting from this transaction.

The following amounts are related to our engineered chemistry and Integrity drilling fluids businesses, have been segregated from our Condensed Consolidated Statements of Operations and Condensed Consolidated Statement of Cash Flows:



	Year Ended December 31,
(Dollars in millions)	2014		2013		2012
Income Before Income Taxes	$	57	$	58	$	57

The carrying amounts of the major classes of assets and liabilities of our engineered chemistry and Integrity drilling fluids businesses divested are as follows:



	December 31,
(Dollars in millions)	2014		2013
Assets:
Accounts Receivable, Net	$	48	$	48
Inventory, Net	99		103
Property, Plant and Equipment, Net	55		52
Goodwill	270		270
Other Intangible Assets, Net	43		49
Other Assets	1		5
Total Assets	$	516	$	527

Liabilities:
Accounts Payable	$	32	$	37
Deferred Tax Liabilities	10		19
Other Liabilities	2		23
Total Liabilities	$	44	$	79

In September 2014, we completed the sale of our pipeline and specialty services business. We received total proceeds of $246 million ($245 million, net of cash disposed) plus preliminary estimated working capital adjustments of $2 million and recognized a gain of approximately $49 million resulting from this transaction. The final proceeds and gain recognition are subject to settlement of working capital adjustments.

In July 2014, we completed the sale of our land drilling and workover rig operations in Russia and Venezuela. We received proceeds upon closing of $499 million ($486 million, net of cash disposed) plus estimated working capital adjustments of $3 million. As a result of our commitment to sell, we recorded a $143 million long-lived assets impairment loss and a $121 million goodwill impairment loss in the second quarter of 2014. Of the $121 million goodwill impairment loss, $95 million pertained to goodwill attributable to our divested land drilling and workover rig operations in Russia. See “Note 9 – Goodwill” for additional information regarding the goodwill impairment. Following the previous recorded impairments and upon closing the transaction net of working capital adjustments, we recognized a loss of approximately $15 million, however, the final proceeds and loss recognition are subject to settlement of working capital adjustments.

Our land drilling and workover rig operations in Russia and Venezuela, pipeline and specialty services business, engineered chemistry businesses and Integrity drilling fluids business have been reclassified as held for sale as of December 31, 2013. As indicated above, we completed the sale of land drilling and workover rig operations in Russia and Venezuela, the pipeline and specialty services business, engineered chemistry business and Integrity drilling fluids during the second half of 2014.

Assets and liabilities have been reclassified as held for sale as of December 31, 2013 in connection with our planned divestitures. These balances are listed in the table below. As of December 31, 2014, we did not have any businesses that qualified for assets held for sale classification.



(Dollars in millions)	December 31, 2013
Accounts Receivables, net	$	244
Inventories, net	170
Other Current Assets	30
Property, Plant, and Equipment, Net	678
Goodwill	419
Other Intangible Assets, Net	59
Other Assets	4
Total Current Assets Held for Sale	$	1,604

Accounts Payable	$	173
Accrued Expenses and Other Liabilities	145
Total Current Liabilities Held for Sale	$	318

On October 7, 2013, we completed the sale of our 38.5% equity interest in Borets International Limited (“Borets”) for $400 million, net of settlement items. Borets is an electric submersible pump manufacturer that operates in Russia. The consideration consisted of $359 million in cash and a three-year $30 million promissory note. As part of the sale, it was agreed that any payables or receivables between the parties would be net settled and, as a result, $11 million that we owed to Borets was deducted from the total consideration. We recorded a gain on sale of $18 million.

In 2013, we also completed the sale of our industrial screen business for proceeds totaling $137 million. Through our industrial screen operations, we delivered screen technologies used in numerous industries and, as a result, the screen business was not closely aligned with our goals as a leading provider of equipment and services used in the drilling, evaluation, completion, production and intervention of oil and natural gas wells. During the year ended December 31, 2013, we recognized gains totaling $6 million resulting from these industrial screen transactions. The major classes of assets sold in these transactions included $54 million in cash, $36 million of accounts receivable, $37 million of inventory and $93 million of other assets primarily comprised of property, plant and equipment, other intangible assets and goodwill. Liabilities of $69 million were also transferred in the sale, of which $60 million were current liabilities.

During 2012, we completed the sale of our subsea controls business in exchange for an equity investment valued at $173 million (see “Note 11 – Equity Investments”). We recognized a $28 million gain from the transaction (approximately $25 million net of tax). The major classes of assets sold included $39 million of accounts receivable and other current assets, $38 million of inventories, $5 million of property plant and equipment and $74 million of goodwill. Liabilities of $13 million were also transferred in the sale.